BigBear.ai Holdings Inc.
11/10/2025 | Press release | Distributed by Public on 11/10/2025 15:30
Quarterly Report for Quarter Ending September 30, 2025 (Form 10-Q)
Management's Discussion and Analysis of Financial Condition and Results of Operations
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis provides information that BigBear.ai Holdings, Inc. ("BigBear.ai", "BigBear.ai Holdings", or the"Company") management believes is relevant to an assessment and understanding of BigBear.ai's unaudited consolidated results of operations and financial condition. The following discussion and analysis should be read in conjunction with BigBear.ai'scondensed consolidated financial statements and notes to those statements included elsewhere in this Quarterly Report on Form 10-Q. Certain information contained in this management discussion and analysis includes forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors. Please see "Cautionary Note Regarding Forward-Looking Statements," and "Risk Factors" in our Quarterly Report on Form 10-Q on Form 10-K. Unless the context otherwise requires, all references in this section to the "Company," "BigBear.ai," "we," "us," or "our" refer to BigBear.ai Holdings, Inc.
The following discussion and analysis of financial condition and results of operations of BigBear.ai is provided to supplement the unaudited condensed consolidated financial statements and the accompanying notes of BigBear.ai included elsewhere in this Quarterly Report on Form 10-Q.We intend for this discussion to provide the reader with information to assist in understanding BigBear.ai's condensed consolidated financial statements and the accompanying notes, the changes in those financial statements and the accompanying notes from period to period, along with the primary factors that accounted for those changes. All amounts presented below are in thousands of U.S. dollars unless stated otherwise.
The discussion and analysis of financial condition and results of operations of BigBear.ai is organized as follows:
•Business Overview: This section provides a general description of BigBear.ai's business, our priorities and the trends affecting our industry in order to provide context for management's discussion and analysis of our financial condition and results of operations.
•Recent Developments:This section provides recent developments that we believe are necessary to understand our financial condition and results of operations.
•Results of Operations:This section provides a discussion of our results of operations for three and the nine months ended September 30, 2025 and September 30, 2024.
•Liquidity and Capital Resources: This section provides an analysis of our ability to generate cash and to meet existing or reasonably likely future cash requirements.
•Critical Accounting Policies and Estimates: This section discusses the accounting policies and estimates that we consider important to our financial condition and results of operations and that require significant judgment and estimates on the part of management in their application. In addition, our significant accounting policies, including critical accounting policies, are summarized in Note 2-Summary of Significant Accounting Policies to the accompanying condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.
Business Overview
Our mission is to help deliver clarity for the world's most complex decisions. BigBear.ai is a leading provider of Edge AI-powered decision intelligence solutions for national security, supply chain management and digital identity. Customers and partners rely on BigBear.ai's predictive analytics capabilities in highly complex, distributed, mission-based operating environments. We are a technology-led solutions organization, providing both software and services to our customers.
Recent Developments
Definitive Agreement to Acquire Ask Sage
On November 10, 2025, the Company entered into an agreement and plan of merger (the "Merger Agreement") with Atlas 2025 Merger Sub, Inc., a Delaware corporation and a direct wholly-owned subsidiary of the Company ("Merger Sub") and Ask Sage, Inc., a Delaware corporation ("Ask Sage") and Shareholder Representative Services LLC, a Colorado limited liability company solely in its capacity as the representative of the Ask Sage Securityholders (the "Securityholders' Representative"), pursuant to
which, among other matters, (i) Merger Sub will merge with and into Ask Sage with Merger Sub ceasing to exist and Ask Sage surviving as a wholly-owned subsidiary of the Company ("the Merger").
The purchase price is comprised of (1) $140 million to be paid solely in cash, subject to customary adjustments for indebtedness, cash, working capital, and transaction expenses and (2) at the Company's option, either shares of BigBear.ai common stock, par value $0.0001 per share (the "Common Stock") (the "Stock Election"), or additional cash equal to $110 million. In the event that the Company makes a Stock Election, the number of shares of Common Stock to be issued will be equal to (a) if the 20-trading day volume-weighted average price of Common Stock immediately prior to the closing date of the Merger (the "20-day VWAP") is greater than $6.345 but less than $7.05 per share, a number of shares of Common Stock equal to $110 million divided by the 20-day VWAP, (b) if the 20-day VWAP is less than or equal to $6.345 per share, 17,336,485 shares of Common Stock, and (c) if the 20-day VWAP is greater than or equal to $7.05 per share, 15,602,837 shares of Common Stock.
The Merger Agreement provides that if the Company has provided notice of a Stock Election, then certain Ask Sage stockholders (each a "Specified Securityholder") must each enter into a lock-up agreement with the Company pursuant to which, among other matters, each Specified Securityholder will be subject to a six-month lockup period (subject to customary exceptions) restricting the sale of Common Stock issued to it in connection with the Merger and entitle the Specified Securityholder to certain registration rights.
The closing of the Merger is subject to customary closing conditions, including receipt of regulatory approval.
ATM Program
The Company completed the "May 2024 Sales Agreement," the "June 2025 Sales Agreement" and the "August 2025 Sales Agreement" during the nine months ended September 30, 2025 for a total gross proceeds of $637 million and 142.3 million shares issued.
2029 Convertible Notes
On December 19, 2024, the Company entered into privately negotiated exchange agreements (the "Exchange Transaction") with a limited number of holders of the Company's 2026 Convertible Notes, to exchange the 2026 Convertible Notes for new senior secured convertible notes due 2029 (the "2029 Convertible Notes", together with the 2026 Convertible Notes, the "Convertible Notes"). The Company exchanged approximately $182.3 million principal amount of the 2026 Convertible Notes for $182.3 million in aggregate principal amount of the Company's 2029 Convertible Notes. The 2029 Convertible Notes bear interest at a rate of (i) 6.0% per annum, if interest is paid in cash and (ii) 7.0% per annum, if the Company elects, subject to certain conditions, to pay interest in kind with shares of its common stock, subject to other adjustments if certain liquidity requirements are not met. The conversion rate is 281.4491 shares of common stock per $1,000 principal amount of 2029 Convertible Notes, which represents an initial conversion price of $3.55 per share of the Company's common stock.
$57.7 million of the 2029 Convertible Notes have been voluntarily converted by noteholders following the Exchange Transaction. These conversions have resulted in the issuance of approximately 16.7 million shares of common stock in exchange for the retirement of the respective notes.
RDO Warrant Exercise
On February 27, 2024, the Company entered into a warrant exercise agreement with an existing accredited investor (the "RDO Investor") to exercise in full the outstanding Registered Direct Offering to purchase up to an aggregate of 8,886,255 shares of the Company's common stock for gross proceeds of approximately $20.6 million (the "RDO warrants"). In consideration for the immediate and full exercise of the RDO warrants, the RDO Investor received a new unregistered common stock purchase warrant to purchase up to an aggregate of 5,800,000 shares of the Company's common stock (the "2024 RDO warrant") in a private placement. The 2024 RDO warrants became exercisable six months after issuance and had a five-year term, with an exercise price per share equal to $3.78. These warrants were fully exercised during the first quarter of 2025.
On February 5, 2025, the Company entered into a warrant exercise agreement with an existing accredited investor to exercise in full an outstanding Common Stock Purchase Warrant, the 2024 RDO warrant, to purchase up to an aggregate of 5,800,000 shares of the Company's common stock. In consideration for the immediate and full exercise of the existing warrant for cash, the investor received a new unregistered Common Stock Purchase Warrant to purchase up to an aggregate of 3,770,000 shares of the Company's common stock (the "2025 RDO Warrant") in a private placement.
The 2025 RDO Warrant became exercisable commencing on August 6, 2025 (the "Exercise Date") with an expiration date five
years after the Exercise Date with an exercise price per share equal to $9.00. The gross proceeds to the Company from the exercise were $21.9 million, prior to deducting estimated offering expenses.
Private Placement Warrant Exercise
On March 4, 2024, the Company entered into a warrant exercise agreement with an existing accredited investor (the "PIPE Investor") to exercise in full the outstanding PIPE warrants to purchase up to an aggregate of 13,888,889 shares of the Company's common stock for gross proceeds of approximately $33.2 million. In consideration for the immediate and full exercise of the PIPE warrants, the PIPE Investor received a new unregistered common stock purchase warrant to purchase up to an aggregate of 9,000,000 shares of the Company's common stock (the "2024 PIPE warrant") in a private placement. The 2024 PIPE warrant became exercisable six months after issuance and had a five-year term, with an exercise price per share equal to $4.75. These warrants were fully exercised during the first quarter of 2025. The gross proceeds to the Company from the exercise were $42.8 million, prior to deducting estimated offering expenses.
Global Economic and Geopolitical Environment
The majority of our revenue is derived from federal government contracts. Funding for U.S. Government programs is subject to a variety of factors that can affect our business, including the administration's budget requests and procurement priorities and policies, annual congressional budget authorization and appropriation processes, and other U.S. Government domestic and international priorities. U.S. Government spending levels, particularly defense spending, and timely funding thereof can affect our financial performance over the short and long term.
On September 30, 2025, the continuing resolution ("CR") allowing U.S. government departments and agencies to operate through the end of the government fiscal year expired and the U.S. government shut down. As a result of the U.S. government shutdown, our business and results of operations may be impacted by the disruptions to federal government offices, workers and operations, including risks relating to the funding of certain programs, stop work orders, delay in contract awards, new program starts, payments for work performed, and other actions. Generally, the significance of these impacts will primarily be based on the length of the shutdown and timing of passage of a new CR or a full budget.
We anticipate the federal budget, debt ceiling, regulatory environment, and potential tax reform will continue to be subject to debate and compromise shaped by, among other things, the current Administration and Congress, heightened political tensions, the global security environment, inflationary pressures, and macroeconomic conditions. The result may be shifting funding priorities, which could have material impacts on defense spending broadly and our programs. Additionally, the administration continues to take steps to evaluate government-wide and defense-specific staffing and procurement, which includes assessing mission priorities, procurement methods, program performance, and other factors and then potentially taking action based on those assessments. Those actions remain uncertain and could result in impacts to both our current and future business prospects and financial performance.
Additionally, the President of the United States has issued multiple Executive Orders, including two that are intended to (i) simplify and accelerate the procurement process through a review and restructuring of the Federal Acquisition Regulation (FAR), and its supplements and (ii) modernize defense acquisitions by promoting commercial solutions, innovative acquisition authorities, and other existing streamlined processes. Among the actions directed by the President is a review of major defense acquisition programs that are behind schedule or over budget, including identifying any programs for potential cancellation.
While the impact of these reforms on our business is uncertain, they could potentially lead to changes in the way we interact with the U.S. Government. We will continue to monitor and assess their effects on our business and financial results. Should the U.S. Government review one or more major defense programs in which we provide solutions or services, and this review leads to a full or partial cancellation of one of these programs, this could have an adverse effect on our business, financial condition, results of operations and cash flows.
We continue to expect the global economic and geopolitical environment to drive adoption of our offerings over the long term, as it has heightened the need for advanced AI tools that provide enhanced intelligence and full spectrum cyber operations - areas where we believe we have unmatched capabilities. While these challenges are still evolving and the eventual outcome remains highly uncertain, we do not believe that these events will have a material impact on our business and results of operations. However, if these challenges worsen, leading to greater disruptions and uncertainty within the technology industry or global economy, our business and results of operations could be negatively impacted.
Components of Results of Operations
Revenues
We generate revenue by providing our customers with Edge AI-powered decision intelligence solutionsand services for data ingestion, data enrichment, data processing, artificial intelligence, machine learning, predictive analytics and predictive visualization. We have a diverse base of customers, including government defense, government intelligence, as well as various commercial enterprises. We generate revenue from providing both software and services to our customers.
Cost of revenues
Cost of revenues primarily includes salaries, stock-based compensation expense, and benefits for personnel involved in performing the services described above, as well as allocated overhead and other direct costs.
Selling, general and administrative ("SG&A")
SG&A expenses include salaries, equity-based compensation expense, and benefits for personnel involved in our executive, finance, accounting, legal, human resources, and administrative functions, as well as third-party professional services and fees, and allocated overhead.
Research and development
Research and development expenses primarily consist of salaries, equity-based compensation expense, and benefits for personnel involved in research and development activities as well as allocated overhead. Certain research and development expenses relate to software developed for sale, lease, or will otherwise be marketed. Costs incurred subsequent to the establishment of technological feasibility and prior to the general availability of the software, are capitalized when they are expected to become significant. All other research and development expenses are expensed in the period incurred.
Restructuring charges
Restructuring charges consist of employee separation costs related to strategic cost saving initiatives to better align our organization and cost structure and improve the affordability of our products and services as well as employee separation costs associated with strategic changes in certain key leadership roles.
Transaction expenses
Transaction expenses incurred in 2024 consist of diligence, legal and other related expenses associated with the Pangiam Acquisition, which was completed on February 29, 2024.
Goodwill impairment
Goodwill impairment consists of non-cash impairments of goodwill.
Net (decrease) increase in fair value of derivatives
Net (decrease) increase in fair value of derivativesconsists of fair value remeasurements of the 2029 Convertible Notes Conversion Option, 2026 Convertible Notes Conversion Option, PIPE warrants, RDO warrants, and IPO private warrants.
Interest expense
Interest expense consists primarily of interest expense, commitment fees, debt issuance discount amortization, and debt issuance cost amortization under our debt agreements.
Other income, net
Other income, netconsists primarily of interest income earned on our money market accounts and held-to-maturity investments, foreign exchange gains and losses, and other non-operating expenses.
Income tax expense
Income tax expense consists of income taxes related to federal and state jurisdictions in which we conduct business.
Results of Operations
The table below presents our condensed consolidated statements of operations for the following periods:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||
| Revenues | $ | 33,143 | $ | 41,505 | $ | 100,372 | $ | 114,409 | |||||||||||||||
| Cost of revenues | 25,714 | 30,739 | 77,442 | 85,594 | |||||||||||||||||||
| Gross margin | 7,429 | 10,766 | 22,930 | 28,815 | |||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||
| Selling, general and administrative | 25,255 | 17,485 | 69,474 | 57,797 | |||||||||||||||||||
| Research and development | 3,375 | 3,820 | 11,934 | 8,529 | |||||||||||||||||||
| Restructuring charges | 660 | - | 4,257 | 1,317 | |||||||||||||||||||
| Transaction expenses | - | - | - | 1,450 | |||||||||||||||||||
| Goodwill impairment | - | - | 70,636 | 85,000 | |||||||||||||||||||
| Operating loss | (21,861) | (10,539) | (133,371) | (125,278) | |||||||||||||||||||
| Interest expense | 4,604 | 6,552 | 14,139 | 19,389 | |||||||||||||||||||
| Net (decrease) increase in fair value of derivatives | (26,125) | (1,330) | 142,962 | 14,396 | |||||||||||||||||||
| Loss on extinguishment of debt | - | - | 2,577 | - | |||||||||||||||||||
| Other income, net | (2,878) | (647) | (5,021) | (1,719) | |||||||||||||||||||
| Income (loss) before taxes | 2,538 | (15,114) | (288,028) | (157,344) | |||||||||||||||||||
| Income tax expense | 17 | 21 | 56 | 22 | |||||||||||||||||||
| Net income (loss) | $ | 2,521 | $ | (15,135) | $ | (288,084) | $ | (157,366) | |||||||||||||||
Comparison of the Three Months Ended September 30, 2025 and 2024
Revenues
| Three Months Ended September 30, | Change | ||||||||||||||||||||||
| 2025 | 2024 | Amount | % | ||||||||||||||||||||
| Revenues | $ | 33,143 | $ | 41,505 | $ | (8,362) | (20.1) | % | |||||||||||||||
Revenues decreased by $8.4 million during the three months ended September 30, 2025 as compared to the three months ended September 30, 2024 primarily due to lower volume on certain Army programs.
Cost of Revenues
| Three Months Ended September 30, | Change | ||||||||||||||||||||||
| 2025 | 2024 | Amount | % | ||||||||||||||||||||
| Cost of revenues | $ | 25,714 | $ | 30,739 | $ | (5,025) | (16.3) | % | |||||||||||||||
| Cost of revenues as a percentage of revenues | 78 | % | 74 | % | |||||||||||||||||||
Cost of revenues as a percentage of total revenues increased to 78% for the three months ended September 30, 2025 as compared to 74% for the three months ended September 30, 2024. The increase in cost of revenue as a percentage of total revenue was partially driven by a higher mix of higher margin solutions work in the three months ended September 30, 2024 as compared to the three months ended September 30, 2025. The decrease in total dollars of cost of revenues was primarily due to lower volume on certain Army programs for the three months ended September 30, 2025.
SG&A
| Three Months Ended September 30, | Change | ||||||||||||||||||||||
| 2025 | 2024 | Amount | % | ||||||||||||||||||||
| SG&A | $ | 25,255 | $ | 17,485 | $ | 7,770 | 44.4 | % | |||||||||||||||
| SG&A as a percentage of revenues | 76 | % | 42 | % | |||||||||||||||||||
SG&A expenses as a percentage of total revenues for the three months ended September 30, 2025 increased to 76% as compared to 42% for the three months ended September 30, 2024, which was primarily driven by an increase in marketing of $1.4 million non-recurring strategic initiatives of $2.0 million and SG&A labor and fringe costs of $4.3 million.
Research and Development
| Three Months Ended September 30, | Change | ||||||||||||||||||||||
| 2025 | 2024 | Amount | % | ||||||||||||||||||||
| Research and development | $ | 3,375 | $ | 3,820 | $ | (445) | (11.6) | % | |||||||||||||||
Research and development expenses decreased by $0.4 million during the three months ended September 30, 2025 as compared to the three months ended September 30, 2024. The decrease was driven by decreased headcount and the timing of certain research and development projects.
Restructuring Charges
| Three Months Ended September 30, | Change | ||||||||||||||||||||||
| 2025 | 2024 | Amount | % | ||||||||||||||||||||
| Restructuring charges | $ | 660 | $ | - | $ | 660 | 100.0 | % | |||||||||||||||
Restructuring charges consist of employee separation costs related to strategic cost saving initiatives to better align our organization and cost structure and improve the affordability of our products and services.
Net (decrease) increase in fair value of derivatives
| Three Months Ended September 30, | Change | ||||||||||||||||||||||
| 2025 | 2024 | Amount | % | ||||||||||||||||||||
| Net (decrease) increase in fair value of derivatives | $ | (26,125) | $ | (1,330) | $ | (24,795) | 1864.3 | % | |||||||||||||||
The net (decrease) increase in fair value of derivatives of ($26.1 million) for the three months ended September 30, 2025 consists of fair value remeasurements of IPO private warrants, 2029 Notes Conversion Options, 2026 Notes Conversion Options, and 2025 RDO warrants. The 2024 PIPE warrants and the 2024 RDO warrant were exercised and fully settled as of September 30, 2025.
Interest Expense
| Three Months Ended September 30, | Change | ||||||||||||||||||||||
| 2025 | 2024 | Amount | % | ||||||||||||||||||||
| Interest expense | $ | 4,604 | $ | 6,552 | $ | (1,948) | (29.7) | % | |||||||||||||||
Interest expense consists primarily of interest expense, commitment fees and debt issuance cost amortization under our Convertible Notes. The decrease in the three months ended September 30, 2025 as compared to the three months ended September 30, 2024 was due to a lower average outstanding balance. See the Liquidity and Capital Resourcessection below for more information.
Other income, net
| Three Months Ended September 30, |
Change
|
||||||||||||||||||||||
| 2025 | 2024 | 2025 vs 2024 | % | ||||||||||||||||||||
| Other income, net | $ | (2,878) | $ | (647) | $ | (2,231) | 344.8 | % | |||||||||||||||
The change in other income, net during the three months ended September 30, 2025 as compared to the three months ended September 30, 2024 was primarily driven by interest income earned on money market accounts and held-to-maturity investments.
Income tax expense
| Three Months Ended September 30, | Change | ||||||||||||||||||||||
| 2025 | 2024 | Amount | % | ||||||||||||||||||||
| Income tax expense | $ | 17 | $ | 21 | $ | (4) | (19.0) | % | |||||||||||||||
| Effective tax rate | 0.7 | % | (0.1) | % | |||||||||||||||||||
The effective tax rate for the three months ended September 30, 2025 and the three months ended September 30, 2024 are insignificant for both periods. The effective tax rate for the three months ended September 30, 2025 and September 30, 2024 differs from the U.S. federal income tax rate of 21.0% primarily due to state and local income taxes, permanent differences between book and taxable income, certain discrete items, and the change in valuation allowance.
As of September 30, 2025, the Company has determined that it is not more-likely-than-not that substantially all of its deferred tax assets will be realized in the future, and continues to have a full valuation allowance established against its deferred tax assets.
Comparison of the Nine Months Ended September 30, 2025 and 2024
Revenues
| Nine Months Ended September 30, | Year-Over-Year Change | ||||||||||||||||||||||
| 2025 | 2024 |
2025 vs 2024
|
|||||||||||||||||||||
| Revenues | $ | 100,372 | $ | 114,409 | $ | (14,037) | (12.3) | % | |||||||||||||||
Revenues decreased by $14.0 million during the nine months ended September 30, 2025 as compared to the nine months ended September 30, 2024 primarily due to lower volume on certain Army programs.
Cost of Revenues
| Nine Months Ended September 30, | Year-Over-Year Change | ||||||||||||||||||||||
| 2025 | 2024 | 2025 vs 2024 | |||||||||||||||||||||
| Cost of revenues | $ | 77,442 | $ | 85,594 | $ | (8,152) | (9.5) | % | |||||||||||||||
| Cost of revenues as a percentage of revenues | 77 | % | 75 | % | |||||||||||||||||||
Cost of revenues as a percentage of total revenues increased to 77% for the nine months ended September 30, 2025 as compared to 75% for the nine months ended September 30, 2024. The increase in cost of revenue as a percentage of total revenue was partially driven by a higher mix of higher margin solutions work in the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2025. The decrease in total dollars of cost of revenues was primarily due to lower volume on certain Army programs for the nine months ended September 30, 2025.
SG&A
| Nine Months Ended September 30, | Year-Over-Year Change | ||||||||||||||||||||||
| 2025 | 2024 | 2025 vs 2024 | |||||||||||||||||||||
| SG&A | $ | 69,474 | $ | 57,797 | $ | 11,677 | 20.2 | % | |||||||||||||||
| SG&A as a percentage of revenues | 69 | % | 51 | % | |||||||||||||||||||
SG&A expenses as a percentage of total revenues for the nine months ended September 30, 2025 increased to 69% as compared to 51% for the nine months ended September 30, 2024. The year-over-year increases include Pangiam's headcount and operating expenses not fully included in the first quarter of 2024 (the Pangiam acquisition was completed on February 29, 2024) as well as the carrying cost of excess resource capacity due to delays in government funding on certain programs during the nine months ended September 30, 2025.
Research and Development
| Nine Months Ended September 30, | Year-Over-Year Change | ||||||||||||||||||||||
| 2025 | 2024 | 2025 vs 2024 | |||||||||||||||||||||
| Research and development | $ | 11,934 | $ | 8,529 | $ | 3,405 | 39.9 | % | |||||||||||||||
Research and development expenses increased by $3.4 million during the nine months ended September 30, 2025 as compared to the nine months ended September 30, 2024. The increase in research and development expenses was driven by increased headcount, the timing of certain research and development projects, as well as the inclusion of Pangiam's results.
Restructuring Charges
| Nine Months Ended September 30, | Year-Over-Year Change | ||||||||||||||||||||||
| 2025 | 2024 | 2025 vs 2024 | |||||||||||||||||||||
| Restructuring charges | $ | 4,257 | $ | 1,317 | $ | 2,940 | 223.2 | % | |||||||||||||||
Restructuring charges increased by $2.9 million during the nine months ended September 30, 2025 as compared to the nine months ended September 30, 2024. Restructuring charges consist of employee separation costs related to strategic cost saving initiatives to better align our organization and cost structure and improve the affordability of our products and services as well as employee separation costs associated with strategic changes in certain key leadership roles.
Transaction Expenses
| Nine Months Ended September 30, | Year-Over-Year Change | ||||||||||||||||||||||
| 2025 | 2024 | 2025 vs 2024 | |||||||||||||||||||||
| Transaction expenses | $ | - | $ | 1,450 | $ | (1,450) | (100.0) | % | |||||||||||||||
Transaction expenses for the nine months ended September 30, 2024 consist of diligence, legal and other related expenses associated with the Pangiam Acquisition.
Goodwill Impairment
| Nine Months Ended September 30, | Year-Over-Year Change | ||||||||||||||||||||||
| 2025 | 2024 | 2025 vs 2024 | |||||||||||||||||||||
| Goodwill impairment | $ | 70,636 | $ | 85,000 | $ | (14,364) | (16.9) | % | |||||||||||||||
During the nine months ended September 30, 2025, the Company recognized a non-cash goodwill impairment charge of $70.6 million, primarily driven by a change in forecast during the second quarter of 2025.
During the nine months ended September 30, 2024, the Company recognized a non-cash goodwill impairment charge of $85.0 million primarily driven by a decrease in share price during the first quarter of 2024 compared to the share price of the equity issued as consideration for the acquisition of Pangiam.
Net (decrease) increase in fair value of derivatives
| Nine Months Ended September 30, | Year-Over-Year Change | ||||||||||||||||||||||
| 2025 | 2024 | 2025 vs 2024 | |||||||||||||||||||||
| Net (decrease) increase in fair value of derivatives | $ | 142,962 | $ | 14,396 | $ | 128,566 | 893.1 | % | |||||||||||||||
The net (decrease) increase in fair value of derivatives of $143.0 million for the nine months ended September 30, 2025 includes fair value remeasurements of the 2029 Notes Conversion Option, IPO private warrants, 2026 Notes Conversion Option, and the 2025 RDO warrants. The 2024 PIPE warrants and the 2024 RDO warrant were exercised and fully settled during the nine months ended September 30, 2025. In connection with the exercise of the 2024 RDO warrants, the Company issued 3,770,000 RDO warrants. The 2023 PIPE warrants and the 2023 RDO warrant were exercised and fully settled during the nine months ended September 30, 2024. The net (decrease) increase in fair value of derivatives for the nine months ended September 30, 2024 includes the fair value remeasurements of the IPO private warrants, the 2024 PIPE and 2024 RDO warrants.
Interest Expense
| Nine Months Ended September 30, | Year-Over-Year Change | ||||||||||||||||||||||
| 2025 | 2024 | 2025 vs 2024 | |||||||||||||||||||||
| Interest expense | $ | 14,139 | $ | 19,389 | $ | (5,250) | (27.1) | % | |||||||||||||||
Interest expense during the nine months ended September 30, 2025 and 2024 consisted primarily of interest expense, debt issuance discount amortization, and debt issuance cost amortization under our Convertible Notes. See the Liquidity and Capital
Resourcessection below for more information. The change in interest expense during the nine months ended September 30, 2025 as compared to the nine months ended September 30, 2024 was primarily due to a lower average principal balance on the 2029 Convertible Notes due to conversion activity during the nine months ended September 30, 2025.
Other income, net
| Nine Months Ended September 30, | Year-Over-Year Change | ||||||||||||||||||||||
| 2025 | 2024 | 2025 vs 2024 | |||||||||||||||||||||
| Other income, net | $ | (5,021) | $ | (1,719) | $ | (3,302) | 192.1 | % | |||||||||||||||
The change in other income during the nine months ended September 30, 2025 as compared to the nine months ended September 30, 2024 was primarily driven by interest income earned on money market accounts and held-to-maturity investments, partially offset by losses on foreign currency transactions. The increase in interest income was primarily related to a higher average cash balance resulting from at-the-market offerings during the nine months ended September 30, 2025.
Income tax expense
| Nine Months Ended September 30, | Year-Over-Year Change | ||||||||||||||||||||||
| 2025 | 2024 | 2025 vs 2024 | |||||||||||||||||||||
| Income tax expense | $ | 56 | $ | 22 | $ | 34 | 154.5 | % | |||||||||||||||
| Effective tax rate | - | % | - | % | |||||||||||||||||||
The effective tax rate for the nine months ended September 30, 2025 and the nine months ended September 30, 2024 are consistent. The effective tax rate for the nine months ended September 30, 2025 differs from the U.S. federal income tax rate of 21.0% primarily due to state and local income taxes, permanent differences between book and taxable income, certain discrete items and the change in valuation allowance. The expense for the nine months ended September 30, 2025 primarily relates to income derived from our United Kingdom entity.
As of September 30, 2025, the Company has determined that it is not more-likely-than-not that substantially all of its deferred tax assets will be realized in the future and continues to have a full valuation allowance established against its deferred tax assets.
Refer to Note 14-Income Taxes of the Notes to condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for more information.
Supplemental Non-GAAP Information
The Company uses Adjusted EBITDA to evaluate its operating performance, generate future operating plans, and make strategic decisions, including those relating to operating expenses and the allocation of internal resources. Adjusted EBITDA is a financial measure not calculated in accordance with GAAP. Adjusted EBITDA is defined as net income (loss) adjusted for interest expense, interest income,income tax expense (benefit), depreciation and amortization, equity-based compensation and associated employer payroll taxes, net increase (decrease) in fair value of derivatives, restructuring charges, non-recurring strategic initiatives, non-recurring litigation, transaction expenses, non-recurring integration costs, goodwill impairment, and loss on extinguishment of debt. Non-GAAP financial performance measures are used to supplement the financial information presented on a GAAP basis. This non-GAAP financial measure should not be considered in isolation or as a substitute for the relevant GAAP measures and should be read in conjunction with information presented on a GAAP basis. Because not all companies use identical calculations, our presentation of non-GAAP measures may not be comparable to other similarly titled measures of other companies.
Adjusted EBITDA - Non-GAAP
The following table presents a reconciliation of Adjusted EBITDA to net income (loss), computed in accordance with GAAP:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||
| Net income (loss) | $ | 2,521 | $ | (15,135) | $ | (288,084) | $ | (157,366) | |||||||||||||||
| Interest expense | 4,604 | 6,552 | 14,139 | 19,389 | |||||||||||||||||||
| Interest income | (4,306) | (635) | (6,566) | (1,807) | |||||||||||||||||||
| Income tax expense | 17 | 21 | 56 | 22 | |||||||||||||||||||
| Depreciation and amortization | 4,127 | 3,394 | 11,048 | 8,740 | |||||||||||||||||||
| EBITDA | 6,963 | (5,803) | (269,407) | (131,022) | |||||||||||||||||||
| Adjustments: | |||||||||||||||||||||||
| Equity-based compensation | 5,321 | 5,168 | 17,040 | 16,074 | |||||||||||||||||||
|
Employer payroll taxes related to equity-based compensation(1)
|
260 | 29 | 1,886 | 741 | |||||||||||||||||||
|
Net increase (decrease) in fair value of derivatives(2)
|
(26,125) | (1,330) | 142,962 | 14,396 | |||||||||||||||||||
|
Restructuring charges(3)
|
660 | - | 4,257 | 1,317 | |||||||||||||||||||
|
Non-recurring strategic initiatives(4)
|
3,520 | 1,568 | 5,131 | 4,942 | |||||||||||||||||||
|
Non-recurring litigation(5)
|
- | 574 | 30 | 1,119 | |||||||||||||||||||
|
Transaction expenses(6)
|
- | - | - | 1,450 | |||||||||||||||||||
|
Non-recurring integration costs(7)
|
- | 742 | - | 1,625 | |||||||||||||||||||
|
Goodwill impairment(8)
|
- | - | 70,636 | 85,000 | |||||||||||||||||||
|
Loss on extinguishment of debt(9)
|
- | - | 2,577 | - | |||||||||||||||||||
| Adjusted EBITDA | $ | (9,401) | $ | 948 | $ | (24,888) | $ | (4,358) | |||||||||||||||
| (1) | Includes employer payroll taxes due upon the vesting of equity awards granted to employees. | ||||
|
(2)
|
The change in fair value of derivatives during the three months ended September 30, 2025 relates to the remeasurement of the 2025 warrants, IPO warrants and the 2026 and 2029 Notes Conversion Options derivative liabilities. The change during the nine months ended September 30, 2025, relates to the $14.0 million loss recorded upon the exercise of the 2024 RDO and 2024 PIPE Warrants (the "2024 Warrants") and issuance of the warrants in 2025 (the "2025 Warrants") in connection with the warrant exercise agreements entered into on February 5, 2025. During the nine months ended September 30, 2025, there was loss related to a mark-to-market adjustment of $59.9M adjustment for the debt to equity conversions during the period. There was a loss related to the fair market value adjustment on the 2025 warrants and the private warrants of $1.4 million. Additionally, there was a loss of $28.6 million and $2.3 millionfair market value adjustments of the 2026 and 2029 Notes Conversion Options, respectively during the nine months ended September 30, 2025.
The increase in fair value of derivatives during the nine months ended September 30, 2024, relates to the $42.3 million loss recorded upon the exercise of the 2023 RDO and 2023 PIPE Warrants (collectively, the "2023 Warrants") and issuance of the warrants in 2024 (the "2024 Warrants") in connection with the warrant exercise agreements entered into on February 27, 2024 and March 4, 2024. This loss is net of a $10.6 million gain related to the issuance of the 2024 Warrants and was further offset by a reduction of $27.4 million upon remeasurement of the 2024 Warrants and IPO Warrants' fair value during the nine months ended September 30, 2024. The decrease in fair value of derivatives during the three months ended September 30, 2024 relates to remeasurement of the 2024 Warrants and IPO Warrants' fair value.
|
||||
|
(3)
|
During the three and nine months ended September 30, 2025and September 30, 2024, the Company incurred employee separation costs associated with a strategic review of the Company's capacity and future projections to better align the organization and cost structure and improve the affordability of its products and services.
|
||||
|
(4)
|
Non-recurring professional fees incurred in connection with discrete, non-recurring strategic initiatives, including business transformation and strategy realignment consulting services which management does not consider part of the Company's ongoing operating expenses.
|
||||
|
(5)
|
Non-recurring litigation consists primarily of legal settlements and related fees for specific proceedings that we have determined arise outside of the ordinary course of business based on the following considerations which we assess regularly: (1) the frequency of similar cases that have been brought to date, or are expected to be brought within two years; (2) the complexity of the case; (3) the nature of the remedy(ies) sought, including the size of any monetary damages sought; (4) offensive versus defensive posture of us; (5) the counterparty involved; and (6) our overall litigation strategy. | ||||
|
(6)
|
Transaction expenses during the nine months ended March 31, 2024 consist primarily of diligence, legal and other related expenses incurred associated with the Pangiam acquisition.
|
||||
|
(7)
|
Non-recurring internal integration costs related to the Pangiam acquisition.
|
||||
|
(8)
|
During the three months ended March 31, 2024, the Company recognized a non-cash goodwill impairment charge primarily driven by a decrease in share price during the quarter compared to the share price of the equity issued as consideration for the purchase of Pangiam. During the six months ended June 30, 2025, the company recognized a non-cash goodwill impairment charge of $70.6 million, primarily driven by a change in forecast during the second quarter of 2025.
|
||||
|
(9)
|
Loss on extinguishment of debt is related to voluntary conversions of the 2029 Notes to common stock and the related extinguishment of unamortized debt discount and debt costs.
|
||||
Free Cash Flow
Free cash flow is definedas net cash used in operating activities less capital expenditures. Management believes free cash flow is useful to investors, analysts and others because it provides a meaningful measure of the Company's ability to generate cash and meet its debt obligations.
The table below presents a reconciliation of free cash flow to net cash used in operating activities, computed in accordance with GAAP:
| Nine Months Ended September 30, | |||||||||||
| 2025 | 2024 | ||||||||||
| Net cash used in operating activities | $ | (20,117) | $ | (23,313) | |||||||
|
Capital expenditures, net
|
(4,114) | (7,700) | |||||||||
|
Free cash flow
|
$ | (24,231) | $ | (31,013) | |||||||
Key Performance Indicators
Backlog
We view growth in backlog as a key measure of our business growth. Backlog represents the estimated dollar value of contracts that we have been awarded for which work has not yet been performed, and in certain cases, our estimate of known opportunities for future contract awards on customer programs that we are currently supporting.
The majority of our historical revenues are derived from contracts with the federal government and its various agencies. In accordance with the general procurement practices of the federal government, most contracts are not fully funded at the time of contract award. As work under the contract progresses, our customers may add incremental funding up to the initial contract award amount. We generally do not deliver goods and services to our customers in excess of the appropriated contract funding.
Our contracts with some customers, including the federal government, generally include termination for convenience provisions pursuant to which the customer can unilaterally elect to terminate the contract. In the event of termination, we may generally recover only our incurred or committed costs and settlement expenses and profit on work completed prior to the termination. As a result, contracts comprising our backlog may not result in actual revenue in any particular period or at all, and the actual revenue may differ from backlog estimates, particularly if customers, including the federal government, exercise their rights to terminate contracts with us pursuant to the termination for convenience provisions.
At the time of award, certain contracts may include options for our customers to procure additional goods and services under the contract. Options do not create enforceable rights and obligations until exercised by our customers and thus we only recognize revenues related to options as each option is exercised. Contracts with such provisions may or may not specify the exact scope, nor corresponding price, associated with options; however, these contracts will generally identify the expected period of performance for each option. In cases where we have negotiated the estimated scope and price of an option in the contract with our customer, we use that information to measure our backlog and we refer to this as Priced Unexercised Options. If a contract does not specify the scope, level-of-effort, or price related to options to procure additional goods and services, we estimate the backlog associated with those options based on our discussions with our customer, our current level of support on the customer's program, and the period of performance for each option that was negotiated in the contract. We refer to this as Unpriced Unexercised Options.
We define backlog in these categories to provide the reader with additional context as to the nature of our backlog and so that the reader can understand the varying degrees of risk, uncertainty, and where applicable, management's estimates and judgments used in determining backlog at the end of a period. The categories of backlog are further defined below.
•Funded Backlog.Funded backlog represents the remaining contract value of goods and services to be delivered under existing contracts for which funding is appropriated or otherwise authorized less revenues previously recognized on these contracts.
•Unfunded backlog.Unfunded backlog represents the remaining contract value, or portion thereof, of goods and services to be delivered under existing contracts for which funding has not been appropriated or otherwise authorized.
•Priced Unexercised Options. Priced unexercised contract options represent the remaining contract value of goods and
services to be delivered under existing contracts if our customer elects to exercise all of the options available in the contract. For priced unexercised options, we measure backlog based on the corresponding contract values assigned to the options as negotiated in our contract with our customer.
•Unpriced Unexercised Options. Unpriced unexercised contract options represent the remaining contract value of goods and services to be delivered under existing contracts if our customer elects to exercise all of the options available in the contract. For unpriced unexercised options, we estimate backlog generally under the assumption that our current level of support on the contract will persist for each option period.
The following table summarizes certain backlog information (in thousands):
|
September 30, 2025 |
December 31, 2024 |
||||||||||
| Funded | $ | 50,446 | $ | 46,552 | |||||||
| Unfunded | 43,921 | 72,474 | |||||||||
| Priced, unexercised options | 272,818 | 283,258 | |||||||||
| Unpriced, unexercised options | 9,239 | 16,021 | |||||||||
| Total backlog | $ | 376,424 | $ | 418,305 | |||||||
Liquidity and Capital Resources
Sources of Liquidity
Our primary sources of liquidity are cash flows provided by our operations and maturities of held-to-maturity investments. We have also generated liquidity through our ATM programs, private placements of our common stock and warrants. Our primary short-term cash requirements are to fund payroll obligations, working capital, operating lease obligations, interest payments and short-term debt, including current maturities of long-term debt. Working capital requirements can vary significantly from period to period, particularly as a result of the timing of receipts and disbursements related to long-term contracts. Based on our projected cash flow and liquidity needs, we believe that our cash from operating activities generated from continuing operations during the year will be adequate for the next 12 months to meet our anticipated uses of cash flow.
Our medium-term to long-term cash requirements are to service and repay debt and to invest in facilities, equipment, technologies, and research and development for growth initiatives.
Our ability to fund our medium-term to long-term cash needs will depend, in part, on our ability to generate cash in the future, which depends on our future financial results. Our future results are subject to general economic, financial, competitive, legislative and regulatory factors that may be outside of our control. Our future access to, and the availability of credit on acceptable terms and conditions, is impacted by many factors, including capital market liquidity and overall economic conditions.
While we intend to reduce debt over time using cash provided by operations, we may also attempt to meet long-term debt obligations, if necessary, by obtaining capital from a variety of additional sources or by refinancing existing obligations. These sources include public or private capital markets, bank financings, proceeds from dispositions or other third-party sources.
ATM Program
In April 2023, the Company filed an automatic shelf registration statement on Form S-3 (the "2023 Shelf Registration Statement") with the SEC registering an indeterminate amount of its common stock, preferred stock, warrants, rights, and units (collectively, "Company securities"), which the SEC declared effective on April 21, 2023. In May 2024, the Company filed a prospectus supplement to the 2023 Shelf Registration Statement which allows the Company to sell, from time to time and at its discretion, Company securities having an aggregate offering price of up to $150 million including shares of common stock that may be sold pursuant to the Company's controlled equity offering agreement, dated as of May 10, 2024 (the "Controlled Equity Offering Agreement"), with Cantor Fitzgerald & Co. ("Cantor"), as sales agent, under an "at the market" offering program (the "May 2024 Sales Agreement").
Pursuant to the Controlled Equity Offering Agreement, the Company may offer and sell common stock having an aggregate offering price of up to $150 million from time to time to or through Cantor, subject to the Company's compliance with applicable laws and the applicable requirements of the Controlled Equity Offering Agreement. The Controlled Equity Offering Agreement stipulates that the Company will pay Cantor a commission equal to up to 3.0% of the gross offering proceeds of any shares of
common stock sold to or through Cantor pursuant to the Controlled Equity Offering Agreement. The Company intends to use the net proceeds from sales of common stock issued under the ATM Program for general corporate and working capital purposes. The timing of any sales and the number of shares sold will depend on a variety of factors to be determined and considered by the Company. The Company is not obligated to sell any shares under the Controlled Equity Offering Agreement.
In June 2025, the Company filed a prospectus supplement to the 2023 Shelf Registration Statement which allows the Company to sell, from time to time and at its discretion, Company securities having an aggregate offering price of up to $150 million including shares of common stock that may be sold pursuant to the Company's Controlled Equity Offering Agreement (the "June 2025 Sales Agreement").
In August 2025, the Company filed a prospectus supplement to the 2023 Shelf Registration Statement which allows the Company to sell, from time to time and at its discretion, Company securities with a maximum of shares sold totaling 65 million, including shares of common stock that may be sold pursuant to the Company's Controlled Equity Offering Agreement (the "August 2025 Sales Agreement"
During the nine months ended September 30, 2025, the Company sold 39,555,415 shares of common stock under the May 2024 Sales Agreement for an aggregate offering price of $150 million. Total issuance costs related to the ATM Program as of September 30, 2025were approximately $2.6 million, resulting in aggregate net proceeds of approximately $147.4 million.
During the nine months ended September 30, 2025, the Company sold 37,697,898 shares of common stock under the June 2025 Sales Agreement for an aggregate offering price of $150 million. Total issuance costs related to the ATM Program as of September 30, 2025were approximately $2.6 million, resulting in aggregate net proceeds of approximately $147.4 million.
During the nine months ended September 30, 2025, the Company sold 65,000,000 shares of common stock under the August 2025 Sales Agreement for an aggregate offering price of$337 million. Total issuance costs related to the ATM Program as of September 30, 2025were approximately $3 million, resulting in aggregate net proceeds of approximately $334 million.
As of September 30, 2025, there is no remaining capacity under the 2023 Shelf Registration Statement.
Held-to-maturity ("HTM") Investments
Net proceeds from the ATM Program not utilized to fund ongoing operating cash flows are invested in U.S. treasury notes and corporate bonds. The Company purchases these debt securities with the positive intent and ability to hold to its maturity. Such debt securities are classified as held-to-maturity and recorded at amortized cost, net of any allowance for credit losses. In order to ensure ongoing cash availability to fund operating expenditures and growth initiatives, maturities of individual HTM investments occur monthly and are reinvested if those funds are not required to supplement operating liquidity requirements. HTM investments do not have maturities that exceed 24 months from acquisition. The Company's investment policy requires that HTM investments not explicitly or implicitly guaranteed by the U.S. Government be issued by institutions highly rated by major rating agencies and have a long history of no credit losses. The investment policy also limits the concentration of HTM investments within a given sector and/or with any individual issuer. HTM investments are not callable prior to contractual maturity.
As the intent is to hold these debt securities to contractual maturity, the Company's HTM investments are not included in the measure of total available liquidity in the table below. Proceeds from coupon payments or the maturity of HTM investments will increase the Company's total available liquidity to the extent the funds are not reinvested in additional HTM investments.
Our available liquidity as of September 30, 2025 and December 31, 2024, consisted primarily of available cash and cash equivalents. The following table details our available liquidity:
|
September 30, 2025 |
December 31, 2024 |
||||||||||
| Available cash and cash equivalents | $ | 456,580 | $ | 50,141 | |||||||
|
Total available liquidity
|
$ | 456,580 | $ | 50,141 | |||||||
The following table summarizes borrowings under our debt obligations as of the dates indicated:
|
September 30, 2025 |
December 31, 2024 | ||||||||||
| 2026 Convertible Notes | $ | 17,668 | $ | 17,668 | |||||||
| 2029 Convertible Notes | 124,605 | 182,332 | |||||||||
| D&O Financing Loan | - | 818 | |||||||||
| Total debt | 142,273 | 200,818 | |||||||||
| Less: unamortized debt issuance discount and costs | 37,421 | 64,596 | |||||||||
| Total debt, net | 104,852 | 136,222 | |||||||||
| Less: current portion | - | 818 | |||||||||
| Long-term debt, net | $ | 104,852 | $ | 135,404 | |||||||
Convertible Notes
On December 7, 2021, the Company issued $200.0 million of unsecured convertible notes (the "2026 Convertible Notes") to certain investors. The 2026 Convertible Notes bear interest at a rate of 6.0% per annum, payable semi-annually, and not including any interest payments that are settled with the issuance of shares, were convertible into 17,391,304 shares of the Company's common stock at an initial Conversion Price of $11.50. The Conversion Price is subject to adjustments, including but not limited to, the Conversion Rate Reset described below and in Note 12-Debt of the Notes to condensed consolidated financial statements included in this Quarterly Report on Form 10-Q. The 2026 Convertible Notes mature on December 15, 2026.
On May 29, 2022, pursuant to the conversion rate adjustment provisions in the 2026 Convertible Notes indenture, the Conversion Price was adjusted to $10.61 (or 94.2230 shares of common stock per $1,000 principal amount of 2026 Convertible Notes) because the average of the daily volume-weighted average price of the common stock during the preceding 30 trading days was less than $10.00 (the "Conversion Rate Reset"). Subsequent to the Conversion Rate Reset, the 2026 Convertible Notes are convertible into 18,844,600 shares, not including any interest payments that are settled with the issuance of shares.
On December 19, 2024, the Company entered into privately negotiated exchange agreements (each, an "Exchange Agreement") with a limited number of holders of the Company's existing 2026 Convertible Notes, to exchange the existing convertible notes for new senior secured convertible notes due 2029 (the "2029Convertible Notes", together with the 2026 Convertible Notes, the "Convertible Notes"). The Company exchanged (the "Exchange Transaction") approximately $182.3 million principal amount of the 2026 Convertible Notes for $182.3 million in aggregate principal amount of the Company's 2029 Convertible Notes and approximately $0.4 million in cash, with such cash payment representing the accrued and unpaid interest on such then existing Convertible Notes. The 2029 Convertible Notes bear interest at a rate of (i) 6.0% per annum, if interest is paid in cash and (ii) 7.0% per annum, if we elect, subject to certain conditions, to pay interest in kind with shares of our common stock. To the extent that the certain liquidity conditions of us and our subsidiaries is not satisfied as of the last business day of any calendar month, then with respect to the period applicable to the interest payment date immediately following the month in which such liquidity condition is not satisfied, the interest rate will be (i) 9.00% per annum, if interest is paid in cash and (ii) 10.00% per annum, if we elect, subject to certain conditions, to pay interest in kind with shares of our common stock (it being understood that such increased rate shall apply solely for such six-month period applicable to such interest payment date). The initial conversion rate is 281.4491 shares of common stock per $1,000 principal amount of 2029 Convertible Notes, which represents an initial conversion price of $3.55 per share of the Company's common stock. The conversion rate and the conversion price are subject to adjustments. The exchange was accounted for as an extinguishment of the 2026 Convertible Notes and the 2029 Convertible Notes were recognized at fair value, which approximated the carrying amount of the principal balances exchanged.
The 2029 Convertible Notes were issued pursuant to, and are governed by, an indenture, dated as of December 27, 2024. The 2029 Convertible Notes will be fully and unconditionally guaranteed, on a senior, secured basis, by the Company and certain of its existing and future direct and indirect subsidiaries, subject to certain exceptions (the "Guarantors"), and will initially be secured on a first-priority basis by substantially all assets of the Company and such Guarantors, subject to certain exceptions.
Upon completion of the Exchange Transaction, the aggregate principal amount of the 2026 Convertible Notes outstanding was $17.7 million. The Company did not receive any cash proceeds from the issuance of the 2029 Convertible Notes pursuant to the Exchange Transactions.
The 2026 Convertible Notes and the 2029 Convertible Notes require the Company to meet certain financial and other covenants. The 2029 Convertible Notes added a covenant that requires the Company to maintain liquidity of at least $15 million measured as
of the last business day of any month. As of September 30, 2025, the Company was in compliance with all covenants related to the Convertible Notes.
The following table presents the carrying amounts and fair values associated with the Convertible Notes as of September 30, 2025. The fair value of the Convertible Notes is considered to be a Level 3 fair value measurement.
|
Outstanding balance
|
Unamortized issuance costs and debt discount
|
Net principal balance
|
Fair value
|
||||||||||||||||||||
| 2026 Convertible Notes | $ | 17,668 | $ | (1,453) | $ | 16,215 | $ | 19,195 | |||||||||||||||
|
2029 Convertible Notes
|
124,605 | (35,968) | 88,637 | 250,622 | |||||||||||||||||||
| Total | $ | 142,273 | $ | (37,421) | $ | 104,852 | $ | 269,817 | |||||||||||||||
D&O Financing Loan
On December 13, 2024, the Company entered into a $1.1 million loan (the "2025 D&O Financing Loan") with AFCO Credit Corporation to finance the Company's directors and officers insurance premium through September 2025. The D&O Financing Loan has an interest rate of 5.99% per annum and a maturity date of September 8, 2025.
On December 20, 2023, the Company entered into a $1.2 million loan (the "2024 D&O Financing Loan") with US Premium Finance to finance the Company's directors and officers insurance premium through September 2024. The D&O Financing Loan had an interest rate of 6.99% per annum and a maturity date of September 8, 2024. The 2024 D&O Financing Loan was fully repaid at maturity.
RDO Warrant Exercise
On February 27, 2024, the Company entered into a warrant exercise agreement with an existing accredited investor to exercise in full the outstanding RDO warrants to purchase up to an aggregate of 8,886,255 shares of the Company's common stock for total gross proceeds of approximately $20.6 million, prior to deducting estimated offering expenses.
PIPE Warrant Exercise
On March 4, 2024, the Company entered into a warrant exercise agreement with an existing accredited investor to exercise in full the outstanding PIPE warrants to purchase up to an aggregate of 13,888,889 shares of the Company's common stock for total gross proceeds of approximately $33.2 million, prior to deducting estimated offering expenses.
Cash Flows
The table below summarizes certain information from our condensed consolidated statements of cash flows for the following periods:
| Nine Months Ended September 30, | |||||||||||
| 2025 | 2024 | ||||||||||
| Net cash used in operating activities | (20,117) | (23,313) | |||||||||
| Net cash (used in) provided by investing activities | (262,853) | 6,235 | |||||||||
| Net cash provided by financing activities | 690,050 | 50,163 | |||||||||
|
Effect of foreign currency rate changes on cash and cash equivalents
|
(641) | (58) | |||||||||
| Net increase in cash and cash equivalents | 406,439 | 33,027 | |||||||||
| Cash and cash equivalents at the beginning of the period | 50,141 | 32,557 | |||||||||
| Cash and cash equivalents at the end of the period | $ | 456,580 | $ | 65,584 | |||||||
Operating activities
For the nine months ended September 30, 2025, net cash used in operating activities was $20.1 million. Net loss before deducting depreciation, amortization and other non-cash items was $34.7 million and was further impacted by a favorable change in net working capital of $14.6 million which partially offset operating cash outflows during this period. The favorable change in net working capital was largely driven by a decrease in accounts receivable of $14.2 million, an increase in accrued expenses of $6.5 million, an increase in other liabilities of $0.2 million, an increase in contract liabilities of $1.0 million, These were partially offset by an increase in contract assets of $1.3 million, a decrease in accounts payable of $2.9 million and an increase in prepaid expenses and other assets of $3.1 million.
For the nine months ended September 30, 2024, net cash used in operating activities was $23.3 million. Net loss before deducting depreciation, amortization and other non-cash items was $22.2 million and was further impacted by an unfavorable change in net working capital of $1.2 million which reduced operating cash flows during this period. The unfavorable change in net working capital was largely driven by an increase in accounts receivable of $5.4 million and a decrease in accounts payable of $8.2 million. These were partially offset by an increase in accrued liabilities of $7.6 million, a decrease in contract assets of $3.1 million, an increase in contract liabilities of $0.5 million, a decrease in prepaid expenses and other assets of $1.5 million, and an increase in other liabilities of $0.2 million.
Investing activities
For the nine months ended September 30, 2025, net cash used in investing activities was $262.9 million, primarily consisting of purchases of held-to-maturity investments of $258.7 million and capitalized software development costs of $3.8 million.
For the nine months ended September 30, 2024, net cash provided by investing activities was $6.2 million, primarily consisting of cash acquired from the Pangiam acquisition of $13.9 million, partially offset by capitalized software development costs of $7.4 million.
Financing activities
For the nine months ended September 30, 2025, net cash provided by financing activities was $690.1 million, primarily consisting of the net proceeds from the exercise of the 2024 PIPE warrants and 2024 RDO warrants of $64.7 million and gross proceeds of $637.1 million from the issuance of common stock under our ATM Program. These cash inflows were partially offset by payment of debt issuance costs to third parties in connection with the Exchange Transaction of $4.7 million, payment of transaction costs in connection with the ATM of $8.3 million, and payment of taxes related to net share settlement of equity awards of $2.0 million.
For the nine months ended September 30, 2024, net cash provided by financing activities was $50.2 million, primarily consisting of the net proceeds from the issuance of the Private Placement and Registered Direct Offering shares of $53.8 million, partially offset by the payment of taxes related to net share settlement of equity awards of $3.1 million and the net repayment of $1.2 million related to the 2023 D&O Financing Loan.
Critical Accounting Policies and Estimates
For the critical accounting estimates used in preparing our condensed consolidated financial statements, we make assumptions and judgments that can have a significant impact on revenue and expenses in our condensed consolidated statements of operations, as well as, on the value of certain assets and liabilities on our condensed consolidated balance sheets. We base our assumptions, judgments and estimates on historical experience and various other factors that we believe are reasonable under the circumstances. Actual results could differ materially from these estimates under different assumptions or conditions.
Our critical accounting estimates are disclosed in Management's Discussion and Analysis of Financial Condition and Results of Operation included in our Annual Report on Form 10-K, for the year ended December 31, 2024, as filed with the SEC on March 25, 2025.
Recent Accounting Pronouncements
See Note 2-Summary of Significant Accounting Policies of the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for a discussion of recently issued accounting pronouncements.
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